Money Management

That’s great news for retirement savers. 

Many people inevitably get a late start on retirement savings. And it’s easy to see why.

A lot of us spend our 20s trying to dig out of credit card debt and save up to buy a home. In our 30s, we’re busy trying to keep up with our mortgage payments and juggle childcare costs. And in our 40s, we’re forced to focus on college savings so our kids don’t wind up in debt like we did.

As such, it’s easy to see how someone might reach their 50s without having saved as much for retirement as they would’ve wanted. Thankfully, the IRS allows older savers to make up for lost time via catch-up contributions.

Once you turn 50, you can put an extra $1,000 into an IRA account on top of that year’s limit for younger savers. So as an example, in 2023, the IRA contribution limit for workers under age 50 is $6,500. But if you’re 50 or older, you get a $1,000 catch-up opportunity that raises your annual contribution limit to $7,500.

The problem with IRA catch-ups, though, is that they haven’t budged for years. Rather, they’ve been stuck at the $1,000 mark.

A new rule, however, is changing that. And it should open the door to added savings among those looking to make more progress in building their retirement nest eggs.

IRA catch-up contributions will soon be tied to inflation

The annual base IRA contribution limit changes every year in line with inflation. But the $1,000 catch-up has worked differently. Unlike the base amount (which is $6,500 this year), catch-up contributions haven’t been tied to inflation, which explains why the IRA catch-up has been stuck at $1,000 for many years.

But thanks to the recently passed SECURE 2.0 Act, starting in 2024, IRA catch-up contributions will be adjusted on a yearly basis to account for inflation just like the base contribution. So all told, in time, older savers should get a chance to boost their contributions even more.

Who’s eligible for catch-up contributions?

The purpose of catch-up contributions may have initially been to give workers who fell behind on savings a chance to pump more money into their retirement accounts. But to be clear, you don’t need to be behind on savings to take advantage of IRA catch-up contributions.

Once you reach the age of 50, you’re eligible to put an extra $1,000 into your IRA each year (and potentially more, once that $1,000 is adjusted for inflation). It doesn’t matter if, at that point, you’re sitting on $12,000 in savings or $1.2 million. As soon as you turn 50, you get to contribute more.

But if you are behind in funding your IRA, then it definitely pays to take advantage of the catch-up option. Not only will it help you close out your career with more money for your senior years, but it can also, in the case of a traditional IRA, exempt more of your income from taxes on an ongoing basis. And that’s a benefit you don’t want to pass up.

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Don’t bust your budget creating the perfect Easter basket when there’s a better way. 

Easter will soon be upon us, and if you have kids — or are a kid at heart — you are probably thinking about your Easter basket already.

Unfortunately, filling up that basket can get pricey. But, the good news is, you don’t have to drain your bank account — or hope the real Easter Bunny appears at your door — in order to make your holiday dreams come true. That’s because the Dollar Tree offers a ton of affordable products to fill your basket to the brim.

So, if you want an Easter basket to remember but don’t want to give your credit cards a workout, check out these Dollar Tree items to fill your basket for just $11.25 total.

1. Start with the classic chocolate eggs

No Easter basket could ever be complete without the classic chocolate eggs the rabbit loves to deliver.

Thankfully, the Dollar Tree has you covered on this one. The store offers a huge selection of different candy eggs, including 4.50-ounce bags of Palmer Peanut Butter filled eggs, as well as Palmer Milk Chocolate Eggs. Pick up one of each kind for a total cost of $2.50 for the two bags.

2. Add in your Peeps

Peeps look adorable and taste even better. Fortunately, the Dollar Tree has both marshmallow chicks and ducks, so bunny and bird lovers will both be happy. Add a box of both kinds to your basket for another $2.50 total and you’ve got the classic Easter candies covered and a great start to your basket.

3. Toss in some tubes of Pastel Chocolate Candies

To add some height to your Easter basket, a couple of tubes of Pastel Chocolate Candies are the perfect choice. These candies taste like M&Ms but come in adorable Easter colors. And the tube they come in has a cute decorated egg on top. Put two tubes in the back of the basket for another $2.50 total.

4. Include Easter Bubble Sticks with Wands

Blowing bubbles is fun for all ages, so the Easter Bubble Sticks with Wands sold by the Dollar Tree will be a welcome addition to anyone’s basket.

For just $1.25, you can get a four-count of bubble wands with different Easter themes, including several bunnies and Easter eggs. The bubble wands also come in classic Easter colors, and the packaging even says Happy Easter!

5. Finish off the basket with a cute plush toy

Finally, your last basket filler could be one of several adorable Easter-themed plush toys, including chocolate-scented stuffed bunnies or fuzzy Easter friends. For just $1.25, these can be kept around long after the holidays are over to provide a soft, squishable memory of all the fun.

6. Pick up a package of Tri-Color Easter Grass

Now that you have your toys and treats, you need a good base for your basket. Unfortunately for parents who don’t want to be vacuuming it up for the next two years, Easter grass is the classic basket filler.

The good news is, the Dollar Tree has a package of affordable tri-color grass for just $1.25 for a 4-ounce bag. This should be enough to cover the bottom of your basket and make it look great.

Now you’re up to $11.25 and your basket is ready to go. Of course, if you also need the basket itself, the Dollar Tree sells those, too. And if any of these items aren’t the perfect fit, the Dollar Tree has a vast selection of other candies and toys that are all Easter themed. It should be easy to fill a basket for this price or less with a collection of them that’s perfect for your kids (or for you!).

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You may want to try it, too. 

A big part of my job is to write about retirement planning. As such, I’m well aware that planning to retire on Social Security alone is a disastrous idea.

Right now, the average senior collecting those benefits gets $1,827 a month. That’s an annual income of about $22,000. And if I’m being honest, there’s just no way I can see myself living on an income that small — even once I’m able to shed some of the larger expenses I’m grappling with now, like college plan contributions for my kids’ education, childcare costs, and my mortgage payments.

That’s why I’m a firm believer in saving for retirement. But that doesn’t make it an easy thing to do.

One challenge I tend to face with regard to my savings goals in general is that spending opportunities have a way of just popping up. I might tell myself that for the upcoming weekend, I’m only going to spend money on groceries and essentials, only to have my kids get invited on an outing that has me swiping my credit card to the tune of $60.

It’s for this reason that I’ve taken to automating my retirement savings. And I highly recommend you do the same.

The benefit of putting the process on autopilot

Even though I do consider myself a pretty good saver, there are times when temptation rears its ugly head. That’s why I prefer to automate my retirement plan contributions.

What I do is arrange for a chunk of my earnings to leave my checking account at the start of each month, before I get to spend that money. That way, I know I’m meeting my goals.

In fact, automating the savings process takes a lot of the pressure off for me. Let’s say I do spend an extra couple of hundred dollars one month because I’m invited to a concert, a few nice restaurant outings, or something else. I don’t have to feel guilty or stressed over that spending because I know I’ve already met my savings goal for the month.

Make sure your savings are being prioritized

One of the things I really like about automated savings is that your financial goals are being prioritized. So even if you’re someone who might struggle to save, by automating the process, you’re basically taking temptation out of the equation.

If you have access to a 401(k) plan through your job, that’s probably the easiest way to put your retirement savings on autopilot. That’s because 401(k) contributions are deducted from your paychecks off the bat.

But if you don’t have a 401(k) plan available to you, you can open an IRA account with an automatic savings feature, and then arrange for a specific amount of money to land in that account every month. It doesn’t have to be a ton of money, either. If you can only swing $50 a month, so be it. But automating the process should help you stick to your goals. I know it certainly has for me.

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If you don’t, you might regret it. 

The average senior on Social Security collects $1,827 a month. Chances are, that’s a lot lower than your monthly pay right now.

It’s important to save for retirement because Social Security will almost certainly not provide you with enough income to cover your bills and have enough money left over to actually enjoy your senior years. And the sooner you start funding an IRA account or 401(k) plan, the better. That means it’s a great idea to start contributing to a savings plan as early as your 20s.

Now, you may be thinking, “Do I really need to start saving that early?” And the answer is, you technically don’t have to. But you may want to, for one big reason.

You don’t want to end up short

Many people spend their 20s trying to dig out of credit card debt and build up emergency savings. So it’s easy to see why the idea of having to make retirement plan contributions might seem difficult or even unappealing.

But one thing you should know about building retirement savings is that the more time you give yourself, the easier it actually becomes. And on the flipside, if you don’t give yourself a lengthy enough savings and investing window, you might end up disappointed in the nest egg you bring into retirement.

Let’s assume you’re able to carve out $200 a month for retirement savings. Let’s also assume you invest your money in a manner that delivers an 8% average annual return. This return is a few percentage points below the stock market’s average return, as measured by the S&P 500 index, so it’s a reasonable one for a longer savings window.

Now, let’s assume you start saving that $200 a month in your 20s so that all told, you end up with a 40-year savings window. That means you’ll wind up with a nest egg worth almost $622,000. That’s pretty impressive, right?

But watch what happens when you don’t start socking that money away until your 30s. If you shrink your savings window from 40 years to 30 years, you’ll end up with a nest egg worth about $272,000.

That’s by no means a negligible amount of money. But would you rather retire with less than $300,000, or more than $600,000? The answer should be pretty obvious. And that’s exactly why it pays to save for retirement in your 20s. A few extra years of contributions and investment gains could make a world of difference.

A good way to get into the habit of saving for retirement

If you’re not used to funding a retirement plan, you might struggle to come up with the money month after month. So if you really want to be successful, put the process on autopilot.

With a 401(k) plan, your contributions actually are automated, because they’re deducted from your paychecks. But many people write a check to their IRAs or transfer money each month, and that’s a system that may not work for you. A better one may be to set up an automatic transfer from your checking account to your IRA so that money lands in your retirement plan at the start of the month — before you’ve gotten a chance to spend it.

Many people don’t start to save for retirement in their 20s. But if you start early, you’re apt to be extremely thankful for it down the line.

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Take steps to reduce your financial stress in your golden years. 

According to the World Economic Forum, there are more centenarians in the U.S. than anywhere else in the world. Indeed, the combination of better healthcare, nutrition, and other factors mean more people are living to 100 than ever before. The UN also predicts that by 2025, over a quarter of the population in the U.S. and Europe will be over 65. On the flip side of the coin, the Centers for Disease Control and Prevention says COVID-19 caused the life expectancy of the average American to fall slightly.

Those mixed figures actually highlight one of the challenges of saving for retirement. Few of us know how long we will live for. That can lead to an understandable temptation to live in the now rather than put money aside for the future. Particularly when sky-high living costs are putting so much pressure on everybody’s bank accounts.

The trouble with this thinking is that you really could live to be 90 or 100. If you don’t have enough put aside — or are in debt when you retire — you may have to work a lot longer than you’d planned. You might also wind up leaning heavily on your children or have to move out of your home. Unfortunately, according to a study from AARP, only around 40% of people in their 30s and 40s feel prepared for retirement.

Start now to reduce stress in your old age

The earlier you start to save and invest for your old age, the less financial stress you’ll have in your autumn years. Time matters because it allows your assets to earn compound interest — basically interest on your interest.

To give you an example, if you invest $2,000 when you are 25 or 35, it will have longer to work for you than if you invest the same amount when you’re 45 or 55. It’s kind of like a snowball gathering momentum and size as it rolls down the slope (in a positive way).

There are no guarantees when it comes to investing in the stock market, but for the purposes of illustration, let’s work with a conservative annual return of 9% a year. This is below the average S&P returns for the past 20 years. Assuming you don’t touch that $2,000 at all, here’s how it might compound across the decades:

How much do you need in your retirement fund?

There are a few different ways you might estimate the amount you need in your old age, but a lot comes down to your cost of living. Start by thinking about what your retirement will look like. If you’re planning to spend it on a cruise ship playing bridge and sipping cocktails, your costs will be very different from someone who wants to live in the countryside and write a novel.

A common back-of-the envelope calculation is to use the 4% rule. The thinking here is that your retirement fund would need to be big enough for you to live off 4% of your portfolio in your first year of retirement. In theory, you’d then be able to withdraw a similar amount (adjusted for inflation) each year for another 30 years. It’s a very rough milestick, but it means if you had $1 million by the time you retire, you’d be able to take $40,000 the first year. For a more detailed reckoning, check out our retirement calculator.

Preparing to live to 100

If you’re not sure you can afford to live to 100 or more on your current retirement savings, the most important thing you can do is look for ways to save and invest more. This may mean cutting back on your spending or trying to increase your earnings so you have more cash to put toward your old age. Here are some steps to take:

Make a plan: There are a lot of factors that will make a difference to how you live your retirement, including where you want to live, what you want to do, and how long you might want to work. Try to map out best- and wors- case scenarios, particularly in terms of your health and healthcare costs.Make regular contributions: We already touched on the importance of starting early, but another key part of retirement planning is to contribute something — even a small amount — to your retirement every month. If you get into the habit of putting that money aside, it becomes easier to build up what you need over time.If your company has a 401(k), contribute to it: 401(k)s are tax advantaged, employee-sponsored retirement schemes. Some companies match all or part of your contributions to the fund — meaning if your firm has one and you’re not putting money into it, you could be leaving money on the table. Find out what provisions your employer has in place and how you can benefit most from them.Make the most of tax-advantaged contributions: Company plans are not the only tax-advantaged retirement options. It’s also worth looking into an individual retirement account (IRA) or a Roth IRA. Make the most of any tax breaks — this will ultimately mean more money for your old age.

None of us know whether we’ll make it to 100. But taking even small steps could make a big difference. Whatever age you live to, that cash could improve your quality of life and help you enjoy your golden years.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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